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Competitive strategies: Global vs. local. © Professor Daniel F. Spulber. Global competitive strategies The G5. Platform strategy Network Strategy Intermediary strategy Entrepreneur strategy Investment strategy. Global competitive strategies.

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competitive strategies global vs local

Competitive strategies: Global vs. local

© Professor Daniel F. Spulber

global competitive strategies the g5
Global competitive strategiesThe G5
  • Platform strategy
  • Network Strategy
  • Intermediary strategy
  • Entrepreneur strategy
  • Investment strategy
global competitive strategies
Global competitive strategies
  • Home, supplier, partner, and customer countries of competitors – differences as sources of competitive advantage
  • Differences in global value connection
  • Differences in products, brand, technology
  • Differences in impacts of political, legal and regulatory climate – trade agreements, home country policies

Design global competitive strategies for competitive advantage

global competitive strategies4
Global competitive strategies

Competitive advantage must be relative to both global and local competitors:

Unilever in US: Breyers,

Ben and Jerry’s, Good Humor, Klondike, Popsicle

Nestlé in US: Dreyers

The great ice cream battle

slide5
Gujarat Cooperative Milk Marketing Federation (GCMMF): India's largest food products marketing organization.
  • Two million farmers in the cooperative
  • Slogan: “A taste of India”
  • PRICE: 10 rupees (20 cents): 100 milliliter Amul ice cream versus

80 milliliter Hindustan Lever Kwality Wall vanilla ice cream

  • ADVERTISING COSTS: Amul: 1% of sales versus

Hindustan Lever: 10-15% of sales on advertising

UNILEVER in India – Kwality Wall

Hindustan Lever faces successful local competitor

slide6
Umbrella brands:Nestlé products in the super-market.Some products carry both global brand and local brand.
global platform strategy
Global platform strategy

The global challenge

  • Global market size: standardization
  • Local differentiation: customization

Strategy: Determine best combination of global and local activities for competitive advantage

global platform strategy8
Global platform strategy

Forces calling for global products (standardization):

  • Convergence in customer preferences and income across target countries with economic development and trade
  • Competition from successful global products
  • International brand awareness
  • Cost benefits from standardization
  • Falling costs of trade with greater globalization
global platform strategy9
Global platform strategy

Forces calling for local products (customization):

  • Differences in customer preferences and income across target countries
  • Build local brand recognition
  • Competition from successful domestic products
  • Regulatory requirements (quality, safety, technical specifications, domestic content) -- EU product standards
  • High costs of trade create separate markets
global platform strategy10
Global platform strategy

Reduces development and production costs

Used in automobiles, mobile phones, computers, aircraft

Example: Cost per product (development and mfg): $80

Cost of basic platform development: $100

Cost of each variation (development and production): $50

Use platform when serving four or more customer country markets: Compare costs of serving four markets:

Distinct products: 4 x $80 = $320

Platform and 4 variations $100 + 4 x $50 = $300 ***

global platform strategy product variety versus economies of scale
Global platform strategyProduct variety versus economies of scale

Business sells 10 units each in Country A and in Country F

  • Unit costs – economies of scale Two local products at 10 units each $ 30/unit

Global product at 20 units $ 20/unit

  • Price company can charge per unit: Global product:$80/unit in each country

Two local products: $95/unit in each country

Global versus regional product:

Tailoring brings $ 5 more earnings per unit

Profit greater by $ 100

Improve tradeoff with platforms and flexible factories to realize economies of scope (mass customization)

global platform strategy12
Global platform strategy

International business managers make decisions about what should be global versus local:

  • Products
  • Technology and inputs
  • Manufacturing
  • Brands
  • Marketing
  • Distribution

Example: Wal-Mart must compete with both international players such as Carrefour and local retailers

global platform strategy local brand positioning of a global brand and global product
Corona sells the same beer, produced in 8 plants in Mexico, all over the world

Advertising adapts to target countries: begins as a working class beer in Mexico, becomes a high quality import in most other countries.

Marketing adapts to local markets

Corona coordinates internationally through its subsidiaries

Global platform strategy Local brand positioning of a global brand and global product
global platform strategy14
Global platform strategy
  • Most products are local and not branded. For example: in food sector Nestle estimates that only 1 % of all goods in food markets are branded
  • Increasing number of international brands, Corona, Nestlé, Sony
  • Increasing brand variations: BMW 3-series (1990s):

More than 1 million varieties can be ordered

  • Local distribution and marketing

Example: McDonald’s, Coca-Cola: Global brand, some local product tailoring, reliance on local distribution

  • Local technology, production, customer service

Acer computer company

global network strategy
Global network strategy
  • Create network of customers, suppliers, partners
  • Use network to achieve global size and reach
  • Use network to provide local customization
  • Network relationships generate competitive advantage
global network strategy16
Global network strategy

Sellers

Buyers

The international business contributes value by creating an international network: Recall Li & Fung

Networks can consist of informal business relationships or more formal contractual relationships

Networks facilitate coordination of sourcing and serving

Network replaces n ∙ m links with

m + n links (hub and spoke network)

12 links

7 links

global network strategy17
Global network strategy

Physical networks:

  • Communications: Wired and mobile telephone systems
  • Internet
  • Transportation: Railroads, Airlines, Shipping, Intermodal systems
  • Energy: Oil and natural gas pipelines, Electric power transmission and distribution
  • Logistics: Postal systems, Wholesale and retail distribution

Business networks:

Manufacturing, services, distribution, technology, social networks (trust and information sharing)

global network strategy the global factory
Global network strategy: The global factory
  • Hong Kong manufacturers own or contract with more than 40,000 factories in South China employing four million workers
  • To take advantage of specialized sources in different countries - best quality
  • To take advantage of cost variations across countries - least cost sources
  • To take advantage of location - minimize transport-costs, transaction costs, and tariffs
global network strategy the global store
Global network strategy: The global store
  • Examples: Dairy Farm, Shell, Zara
  • Growth: access to additional customers
  • Develop global brands
  • Coordination economies from centralized regional warehouses and production facilities
  • Provide access to sourcing network – Enhances value of supplier contacts by expansion of distribution
  • Lower transaction costs for suppliers who deal with fewer distributors
  • Lower risk from pooling demand fluctuations
global network strategy20
Global network strategy
  • Network effects: Number of members can affect the value of most of existing links
  • Architecture: Structure of the network affects costs and performance (hub-and-spoke versus point-to-point)
  • Companies should capture the value created by their network organizing activities
  • Networks are mechanisms for delivering all kinds of services, such as entertainment and information, rather than physical products.

“Access is becoming a potent conceptual tool for rethinking our world view as well as our economic view, making it the single most powerful metaphor of the coming age.” Jeremy RivkinThe Age of Access

global network strategy partner networks
Global network strategyPartner networks
  • Achieve global scale
  • Members focus on their region
  • Reduce competition by avoiding duplication of facilities and operations
  • Avoid government restrictions on ownership and market dominance
  • Technology standard setting
  • Complements in production
  • Complements in demand (game players and games)
global network strategy partner networks global reach british airways american airlines
Global network strategyPartner networks: Global reachBritish Airways / American Airlines
  • Provide 60% of all transatlantic services
  • "Alliance that Revolves Around You"
  • ONEWORLD members: Iberia, Cathay Pacific, Quantas, Finnair, Aer Lingus, Lan Airlines (Chile)
  • The airlines cooperate on scheduling and ticketing, frequent flyer programs, airport clubs, baggage handling, customer service
  • Competitive response to the STAR ALLIANCE from United, Lufthansa, SAS, Air Canada and Thai Airways (210,000 Employees, flights to 578 cities in 106 countries)
  • 600 destinations in 135 countries around the world, operating over 8000 flights daily, 230 million passengers/year
slide23
Global network strategyPartner networks: Technology standards

Mobile phone operating system: Owners

global network strategy partner networks technology standards
Global network strategyPartner networks: Technology standards

Mobile phone operating system: Licensees

global network strategy partner networks technology standards25
Global network strategyPartner networks: Technology standards
  • Software licensing company
  • Open- standard operating system
  • First open Symbian OS phone (in 2001):

Nokia 9210 Communicator

  • About 85% market share
  • Standard-setting network
global network strategy franchise networks
Global network strategyFranchise networks

Advantages

  • Rapid international growth
  • Local ownership
  • Local management
  • Lower capital outlays

Disadvantages

  • Search cost of finding franchise owners overseas
  • Costs of monitoring performance across borders
  • Transaction costs of forming franchise contracts in other country remains
global intermediary strategy
Global intermediary strategy
  • Matchmaker
    • Brings buyers and sellers together across international borders
  • Market maker
    • Creates and operates markets that cross international borders
  • Agent
  • Provide representation in other countries
global intermediary strategy matchmaker
Global intermediary strategyMatchmaker
  • Bridge international differences in goods and services, business practices, law and regulations, currencies, languages, time zones
  • Provide value-added activities
  • Representative agents in sales, distribution, purchasing, financing, contracting, and supply chain managers
  • Match offers to buyer and seller needs: product features, location, time.
  • Avoids costs of search for buyers and sellers
  • Reduces buyer and seller risks from dealing with few trading partners,
global intermediary strategy matchmaker29
Language: Seller speaks Chinese, buyer speaks Spanish, intermediary speaks both

Currency: Seller wants pesos, buyer has dollars, intermediary changes dollars to pesos

Distance: Seller is in Thailand, buyer is in Brazil, intermediary arranges transportation

Trust: Buyer and seller both trust the intermediary without having dealt directly with each other

Time: Seller is in Japan, buyer is in Mexico, intermediary operates in both time zones

Knowledge: Seller in Germany knows production technology, buyer in US knows preferences of US customers, intermediary combines knowledge of supply and demand across borders

Culture: Seller and buyer are in different countries, intermediary adapts products, services, contract terms and negotiation to diverse social customs

Global intermediary strategyMatchmaker
mitsui
Mitsui

“Our first core competence is facilitating international trade with innovative services tailored to client needs”

mitsui31
Mitsui

“Our second core competence is working with our global clientele to create new trade flows and new business”

mitsui32
Mitsui

Mitsui

“Distributor of goods and services;

Transfer agent for technology;

Financier, Investor;

Project organizer;

Market developer;

Resource developer;

Well-informed consultant and business partner.”

mitsui is in top 15 of fortune global 500
Mitsui is in top 15 of Fortune Global 500

http://www.mitsui.co.jp/tkabz/english/corp/index.htm

global intermediary strategy beating bypass competition
Global intermediary strategyBeating bypass competition

TradeCountry H

Transaction cost T

Transaction strategy offers innovative transactions

Your costs of trade T must be less than competitor costs of trade T*

Example:

Li & Fung

ServeCountry A

SourceCountry B

Bypass competition

Transaction cost T*

slide35
Global intermediary strategy

Market maker

  • Cemex
  • Mittal
  • Cargill
  • BP Amoco
  • eBay

The global market maker aggregates demand across countries and aggregates supply across countries

slide36
Global intermediary strategy

Market maker

Ingram Micro: the leading international wholesaler of technology products and services

  • Wholesales 280,000 computer hardware and software products – think of number of prices!
  • Sources in US and many other countries from 1,700 manufacturers
  • Serves 175,000 resellers in more than 100 countries
  • Serves through operations and affiliates in 35 countries
  • Establishes prices, coordinates sales and purchases, clears the market, allocates products
global intermediary strategy market maker
Global intermediary strategyMarket maker
  • Creates and operates international markets
  • Chooses prices, conveys information
  • Adjusts sourcing and serving to clear markets – avoids efficiency losses from market imbalances
  • Provides immediacy: ready to buy and sell
  • Allocates goods and services across countries
  • Gathers and aggregates information about customers and suppliers on an international level, inventories, orders, and production
  • Applies IT to international coordination
  • Earns returns from international risk pooling
global intermediary strategy agents
Global intermediary strategyAgents
  • Export Marketing Company (EMC) represents sellers, can be broker or dealer, bears risks, arranges resale, transportation, credit
  • Export Trading Company (ETC) represents buyers, handles imports, usually takes title to goods
  • Act as international agent: provide expertise in negotiation, market knowledge
  • Provide trust to buyers and sellers
  • Allows principal to delegate authority for distant transactions
  • Provides market expertise, often to smaller firms
global intermediary strategy more agents
Global intermediary strategyMore agents
  • Piggyback arrangements: e.g. Sony distributes in Japan for Whirlpool; GE Trading Co. distributes for other US manufacturers in Africa and Latin America
  • General Trading Companies: In Japan, there are Sogo Shosha (large scale) and Senmon Shosha (smaller scale) trading companies. Similar companies exist in Europe, South Korea, Taiwan, Singapore and Hong Kong
  • Government Procurement Agencies, e.g. China Central Trade Offices
  • Distributor/Importer (jobbers, dealers, wholesalers)
  • Direct sales (representatives that work on commission)
  • Overseas retailers, wholesalers
global entrepreneur strategy
Global entrepreneur strategy
  • Bring buyers and sellers together in new combinations
  • Provide new products to new customer countries
  • Arrange new production and procurement in supplier countries
  • Introduce innovative transaction methods across borders

– Citigroup financial services, Google, eBay

  • Apply innovative technologies and business methods
  • Create new business firms in other countries
  • New inter-country connections!
global entrepreneur strategy41
Global entrepreneur strategy

Micro credit

In 1974, Yunus, a Bangladeshi economist from Chittagong University, led his students on a field trip to a poor village. They interviewed a woman who made bamboo stools, and learnt that she had to borrow the equivalent of 15p to buy raw bamboo for each stool made. After repaying the middleman, sometimes at rates as high as 10% a week, she was left with a penny profit margin.

1983: Yunus founds Grameen Bank

In Bangladesh today, Grameen Bank has 1,084 branches, with 12,500 staff serving 2.1 million borrowers in 37,000 villages.

www.grameen.com

Muhammad Yunus of Bangladesh and the Grameen Bank jointly awarded the 2006 Nobel Peace Prize.

summary and take away points
Investment strategy next timeSummary and take-away points
  • Coordination of competitive actions across borders key to gaining global competitive advantage
  • Achieve standardization and customization
  • Advantage over global and local competitors
  • Many more strategies possible…
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